Whether you're left of center or right of center (...or you don't care to be measured relative to whatever "center" means), today's budget deficit of 1.2% GDP is a non-issue.
That is, unless you're one of those on the left or right who likes to play political games with deficits. A few politicians and concerned citizens disliked the idea of deficits so much they formed an organization, in the '80s I think, called The Concord Coalition. (I wrote them a letter nine years ago, but haven't yet received an answer. I'm starting to think someone lost it at the bottom of her inbox, or buried it in Concord's too-hard-to-do file. Too bad; back then we still had three years left to shift our priorities before 9/11/01 arrived.)
Recently, I've noticed left-leaners having some rhetorical fun with the deficit. Their typical assertion:
"No wonder the administration touts the 'unified budget deficit'; it looks really small. Why don't we ever hear about the deficit that really matters, the dreaded, bloated General Fund deficit? It's a sinister plot to keep you uninformed about the tragic raid of the social insurance trust fund surpluses."
Yes, and I'm sure Karl Rove was behind that plot, too.
Well, now it's my turn to have some fun with deficits. First, let's review what has happened in the last fiscal decade (i.e., ten years ending October 2007). The federal government's receipts and outlays net out to the surpluses and deficits shown in the far right column below:
The bottom right corner, $1.1 trillion, is the ten-year increase in publicly-held debt -- which most economists (...those who refuse to let politics get in the way of economics, anyway) say is the most important of several measures of federal debt. Here's an excerpt from a summary page at the US Treasury website:
Debt held by the public is the most meaningful of these concepts and measures the cumulative amount outstanding that the government has borrowed to finance deficits.
So, let's see what the deficits look like under three different accounting scenarios. The first is the way the feds actually chose to account for the receipts (because it's the law). Here's what the deficits look like; the orange star is the additional amount that was borrowed from the public.
Now for the fun part. Let's "shore up" the General Fund, just by assuming the law mandated accounting for the receipts a little differently. (Note: same total receipts, same total outlays, nobody's social security check changes by even a penny.) All we do in Scenario 2 is call all social insurance receipts by a different name: "General Fund supplemental taxes."
Note that there's no change in the amount borrowed from the public (see orange star); we just changed which government pocket owes government-backed money to the other government pocket.
Now let's assume the law mandated that all trust fund surpluses be classified as "General Fund supplemental receipts." (Again, same total receipts, same total outlays, nobody's social security check changes by even a penny. Again, we just changed how much one government pocket owes government-backed money to the other government pocket. Again, no change in the amount borrowed from the public.)
Bottom line: Because the unified budget deficit is the change in publicly-held debt, that is the important deficit number to track. It is currently 1.2% GDP; it's small. When you hear anyone assert that the general fund deficit is a more important number, start suspecting a political agenda attempting to masquerade as economics.
The never-mentioned way to keep the publicly-held debt to a comfortable percentage of GDP is to grow GDP at least as fast as the debt grows. Because sufficient growth makes debt a non-issue, I wonder which candidates have some positive ideas about how to enhance the growth of the economy. [A few Republicans do (...not all); but I'm having trouble remembering any specific growth proposals from any Democrats. Maybe I haven't been listening enough; help me out if you know of some.]
If you know anyone who asserts that the above analysis is invalid because it "steals from the trust funds"—including your Senators or Congressman or Congresswoman, ask them how they'd answer the following brain teaser:
If you were in charge of financial management for the federal government's social insurance trust funds, and the trust funds ran a surplus, would you:
(a) hoard the US-government-backed cash; or
(b) exchange it for interest-earning US-government-backed bonds?
If they picked (a), ask them why they'd choose not to earn interest on their multi-trillion dollar financial asset. If they picked (b), congratulate them for choosing the method by which trust fund surpluses are already being managed.